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GIFT   OF 


State 
Insurance 


. 


CRITICISM  BY 


;urance  and  Investment  News 


REPLY  BY 

HARRIS  WEINSTOCK 

Member  Industrial  Accident  Commission  of  the 
State  of  California 


Extracts  from  Insurance  and  Investment 

News  Article  Published  Under  Date 

November  12,  1914 


"Insurance  managers  and  general  agents,  not  to  men- 
tion the  local  agents  and  brokers,  have  been  much  per- 
turbed of  late  by  the  appearance  of  a  circular  from  the 
California  State  Compensation  Fund,  signed  by  its  mana- 
ger, Mr.  Claude  Fellows,  setting  forth  the  fact  that .  all 
holders  of  the  Fund's  compensation  policies  would  receive 
a  refund  of  15  per  cent  of  their  premiums." 

"It  is  indeed  a  surprising  thing  to  men  in  the  big 
liability  and  compensation  game  that  the  Fund,  which  is 
no  more  nor  less  than  an  insurance  company,  in  the  first 
making,  not  out  of  the  cradle,  so  to  speak,  should  dare 
do  so  hazardous  a  thing,  without  rhyme  or  reason,  or  any 
basis  in  business  and  surely  none  in  insurance  ethics." 

"Why  the  State  Fund  at  all?  What  the  necessity  of 
such  a  financial  scheme  and  the  organization?  Could  not 
the  large  insurance  companies,  with  their  great  assets  and 
lawful  reserve,  take  care  of  the  situation  in  a  far  more 
efficient  manner  at  a  less  percentage  of  expense?" 

"The  barefaced  circular  of  the  State  Fund,  as  of  Octo- 
ber 19th,  eradicates  it  from  the  list  of  conservative*  and 
properly  managed  insurance  carriers.  The  letter  smacks  of 
the  'get-rich-quick'  type,  and  a  careful  perusal  of  the  figures 
stamps  it  so." 

"Use  their"  own  figure's/' ^'pfl^  the  statutory  require- 
ments of  reserve,  f rom ' wKich ' th*<?y  are  exempt  (and  just 
why,  heaytri  SHOW'S-  ;a*s;  *K  it  is.  p/!op*er;  f  or  one  it  is  proper 
for  both),  ah3  a'ftef  atfplyltig •tiki's  pf ©per  reserve  deduction 
note  the  result.  We  have  a  true  surplus  of  some  $67,020.40, 
as  against  their  false  figures  of  $124,020.40.  Follow  this 
by  taking  15  per  cent  (as  promised  the  policyholders)  of 
the  premiums  written,  and  you  might  be  surprised  to  find 
an  actual  deficit  of  $2,300  to  pay  the  rebate." 

"If  it  did  not  mean  the  actual  pilfering  of  a  fund  set 
aside  to  protect  industrial  cripples,  it  would  be  indeed  a 
joke." 


Why  The  State  Fund? 

BY 

HARRIS  WEINSTOCK 


Presumably,  the  writer  of  the  article  published  in  the 
Los  Angeles  "Insurance  and  Investment  News"  is  an 
alleged  insurance  expert,  but  as  a  matter  of  fact  he  is 
speaking  out  of  the  fullness  of  his  ignorance  of  the  situa- 
tion rather  than  from  his  knowledge  of  it.  He  pertinently 
asks  "Why  the  State  Fund  at  all?" 

The  State  Compensation  Insurance  Fund  was  created 
by  the  Legislature  to  protect  employers  against  excessive 
insurance  rates,  and  to  insure  the  injured  workers  prompt 
and  equitable  settlements.  When  the  measure  was  before 
the  Legislature  stock  company  representatives  contended 
that  its  passage  would  result  in  an  increase  in  the  compen- 
sation rates  quoted  under  the  Roseberry  Act.  When  the 
State  "Fund"  entered  the  field,  however,  these  rates  were 
reduced  25  per  cent  on  the  average.  This  was  the  first 
advantage  employers  derived  from  the  intervention  of  State 
insurance. 

Next  comes  the  announcement  that  the  State  purposes 
returning  15  per  cent  of  all  premiums  earned  on  January 
1st,  making  in  all  a  difference  in  favor  of  policyholders 
of  about  40  per  cent.  And  15  per  cent  is  only  the  first 
return.  There  is  likely  to  be  a  substantial  further  refund 
to  1914  policyholders  after  the  reserves  are  applied  against 
the  actual  losses  as  provided  by  law.  This  seems  to  me  to 
answer  the  question,  "Why  the  State  Fund  at  all?" 

The  critic  evidently  is  not  aware  of  the  fact  that  the 
15  per  cent  refund  simply  represents  a  saving  through 
the  State's  lower  expense  cost;  that  the  return  is  to  be 
made  only  on  premiums  earned  and  not  on  the  unearned 
portion ;  and  that  the  refund  can  and  will  be  made  without 
affecting  the  appropriation  of  the  Legislature.  Instead, 
reserves  will  be  maintained  on  the  same  basis  as  required 
of  corporate  insurance  carriers  and  a  considerable  addi- 
tional catastrophe  fund  set  aside.  In  other  words,  the 
State  has  conducted  its  business  at  an  expense  of  about 
one  fourth  that  of  the  stock  companies  and  the  saving 
rightfully  belongs  to  the  policyholders.  It  appears,  there- 
fore, that  our  critic  is  wasting  Tiis  sympathies  upon  the 
industrial  cripples  whose  funds  the  Commission  is  charged 
with  "pilfering"  and  who  are  being  thoroughly  protected  by 
the  State  Compensation  Insurance  Fund. 

If,  as  the  writer  of  the  article  referred  to  states,  the 
large  insurance  companies  can  take  care  of  the  situation 
in  a  far  more  efficient  manner  and  at  less  percentage  of 
expense  they  have  not  thus  far  been  able  to  demonstrate  it. 


In  addition  to  low  operating  cost,  during  the  first  nine 
months,  the  State  "Fund"  handled  about  3,000  accident 
cases,  only  eleven  of  which  cases  were  referred  to  the 
Industrial  Commission  for  hearing — a  record  of  very  nearly 
100  per  cent  satisfaction  to  employers  and  workers. 

"Figures"  (properly  handled)  "do  not  lie,"  but  as 
manipulated  by  our  critic  they  may  be  badly  abused.  He 
refers  to  a  deficit  to  pay  the  return  promised.  We  recently 
invited  corporate  company  representatives  to  make  a  minut . 
inspection  of  the  records  of  the  "Fund"  to  prove  that  the 
return  can  be  made  without  disturbing  appropriation  Oi 
reserves,  but  on  the  contrary  leaving  a  substantial  addition 
to  the  catastrophe  surplus.  To  date  the  invitation  ha 
not  been  accepted  and  we  further  challenge  any  of  oui 
corporate  competitors  to  show  a  better  record  of  IO*A 
operating  cost  and  efficient  service  than  made  by  the  State 
Compensation  Insurance  Fund. 

HARRIS  WEINSTOCK, 
Member  Industrial  Accident  Commission 


State  Compensation  Insurance  Finn 

OF  THE 

STATE  OF  CALIFORNIA 

Executive  Offices 

525  Market  Street:  San  Francisco 

C.  W.  FELLOWS,  Manager 


Branch  Offices 
415  Syndicate  Building,  1440  Broadway,  Oakland 

C.  I.  BLOTCKY,  Resident  Special  Agent 

,W.  I.  HoUingsworth  Building,  Los  Angeles 

W.  L.  McCONNELL,   District  Manager 

542  Spreckels  Building,  San  Diego 

G.  E.  HOME,  Resident  Special  Agent 


The  State  Fund  invests  only  in  California  Securities  approved  by  the] 
Attorney  General. 

,    It  does  not  require  employers  to  refer  injured  employees  to  certain 
'•>  specified  physicians. 

It  selects  its  risks  carefully  and  does  not  assume  hazards  beyond  its  safe 
carrying. 

Its  inspection  and  merit  .rating.service  is  unexcelled. 


GENERAL  LIBRARY  -  U.C.  BERKELEY 


8000202103 


393678 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


20Nov'48j£ 


SC' 

2e 


17Apr'58JN 


31958 


APR  Q4  1996 


